Industrial growth in negative zone in Feb

The industrial production contracted by 1.2 per cent in February, compared to 9.5 per cent growth a year ago, despite stimulus packages announced by the government.

However, negative industrial growth at 0.5 per cent estimated provisionally for January was revised upwards to a positive 0.39 per cent. Industrial production had contracted for the first time in 15 years in October, and then again in December.

Industrial growth, as measured by the Index of Industrial Production, was pulled down by negative 1.4 per cent growth in manufacturing and negative growth of 1.6 per cent in mining.

The manufacturing constitutes around 80 per cent of the IIP. For the first 11 months of this fiscal, industrial growth stood at 2.8 per cent, compared to 8.8 per cent a year ago.

Besides manufacturing, mining output declined 1.6 per cent in February, against growth of 7.9 per cent a year ago.

However, capital goods production rose 10.4 per cent, showing that industry is not so subdued about the future. Electricity generation also grew marginally by 0.7 per cent.

According to provisional figures, it is the third month in a row that industrial growth has turned negative. However, negative industrial growth at 0.5 per cent estimated provisionally for January was revised upwards to a positive 0.39 per cent.

Also, provisional estimates had shown industrial output falling by 0.4 per cent in October, but now revised figures showed it to be rising by 0.11 per cent.

Even as the cement, steel and auto sectors showed signs of recovery, slackening overseas demand is hitting exports.

Exports are estimated to have declined for the sixth consecutive month in March. Analysts say stimulus would take time to yield results, though not to a great extent. Nagesh Kumar, director-general with economic think tank RIS, said, "The stimulus packages will show effect after a while, though the size of the packages was modest and I don't see major impact from them. I expect March industrial growth to be in positive territory."

Falling exports and contracting industrial output, among others, have raised demand for more rates cut by RBI to spur industrial growth. Inflation falling to a low pf 0.26 per cent, provides room to the central bank to ease monetary policy.

"Inflation is low due to crisis in demand and crisis of confidence... It gives RBI scope for lowering policy rates in its annual policy," Nagesh Kumar said. RBI Governor D Subbarao had recently said that the central bank's main objective is to arrest economic slowdown.

Besides capital goods, the production of consumer durables, which showed a negative growth for quite some time, rose by 5.7 per cent in February from 3.1 per cent a year ago.

In terms of specific industries, as many as nine of 17 have shown negative growth in February. Hit by lower demand, metal products and parts recorded a massive decline of 31.3 per cent, followed by food products, which contracted by 28.1 per cent. Wood and wood products output fell by 16.5 per cent.

Production of machinery and equipment, other than transport equipment, however, climbed by 15.6 per cent.

The government has provided three stimulus packages so far, including measures like excise duty cut of six per cent, service duty reduction of two per cent, increase in planned expenditure, leeway for infrastructure refinance company IIFCL to come out with tax free bonds and so on. RBI, on the other hand, has provided monetary stimulus for the economy.